Retail banks could have been too hasty in pushing up their longer-term fixed home lending rates last week and might have been acting in self interest rather than the best interests of their customers.
Reserve Bank governor Alan Bollard has issued a warning about the sudden rise of long-term wholesale interest rates, which are being passed on by retail banks through higher fixed-term home lending rates.
"As we said in our March 12 monetary policy statement, the economic recovery is expected to be gradual. Furthermore, the risks around the outlook continued to be weighted to the down side."
In those circumstances, the bank believed the rise in longer-term interest rates was unwarranted and inconsistent with the monetary policy outlook.
The Reserve Bank was projecting interest rates to remain at relatively low levels for an extended period, he said.
"If this apparent distortion persists, it could put unnecessary pressure on the cost of borrowing by firms and households," Dr Bollard said.
ABN Amro Craigs broker Chris Timms said Dr Bollard was warning people that by fixing their mortgages now, they could be doing more harm than good.
If the Reserve Bank cut another 1% off the official cash rate this year, fixed rates could be around 6% while the floating rate would go to 4%.
"There is plenty of time for people to fix. Dr Bollard is saying there is no need for them to do it right now.
"If the Reserve Bank thinks rates could go lower, is it better for the banks to lock in customers now or is it better for the customer?"
Having lower short-term rates and higher long-term rates was a return to the normal interest-rate curve but the Reserve Bank was concerned how quickly things had "snapped around", Mr Timms said.
The five-year wholesale rate had risen from 3.9% in February to 5% by mid-March.
Late last week, retail banks raised their longer-term fixed mortgage rates to around 6.5% for three years, 7.15% for four years and 7.25% for five years.
A survey out yesterday by Dun and Bradstreet showed that one in five New Zealanders with a mortgage was prepared to miss a repayment and 51% of people admitted to making at least one bill payment late in the past 12 months
The study's findings challenged some accepted views in the credit industry, particularly the priority given to mortgage repayments, Dun and Bradstreet New Zealand general manager John Scott said.
"Mortgages are generally believed to be the highest priority for New Zealand households but the findings show that as the economic outlook tightens, and this impacts household incomes, many are focusing on the absolute essentials, even if that comes at the expense of their mortgage."
New Zealanders considered home phones and utilities as daily essentials and would strive to pay those bills when they fell due, he said.
While the mortgage was considered extremely important, the study found that when "push came to shove", people were prepared to miss a payment to ensure they had free cash for their daily essentials.
